Posted on May 21, 2011

In the first quarter of this year alone, liquidity in the country stood at an incredible QR270.9bn, up 11.8 percent from QR242.3bn in 2010, official figures suggest. Analysts say higher state revenues due to crude rates shooting up in the global markets and increased inflow of foreign investment are two of the many factors responsible for high liquidity flow.

Statistics show that public sector, private sector as well as individuals’ expenditures have increased manifold over the past decade, pushing the purchasing power of the people considerably up. “Higher inflation is the price low and middle-income people are paying for Qatar’s fast-growing per capita income,” says an analyst not wanting his name in print.

Liberal consumer lending by banks have been an equally large contributor to inflation. Consumer credit dispensation by the banking sector was a high of over QR55bn in 2010. Qatar’s central bank has taken belated steps to curb personal lending by the banking sector, say analysts. They, though, appreciate its efforts to absorb some of the surplus liquidity of the banks by issuing treasury bills worth QR2bn every month.

Food continues to be expensive because of the global trend since Qatar imports some 90 percent of its food requirements. The state’s recent move to rein in the rising retail prices of fresh fruits and vegetables is described by market sources as faulty. They say the uniform pricing policy would discourage retailers to sell quality stocks as they can make more profits by selling low quality vegetables and fruits. “It’s always prudent to let price mechanism of things like fruits and vegetables to be determined by the market,” says a retailer.

House rents having come down nearly 25 to 30 percent since their historic peaks in 2008-09 is a myth, since shop rentals remain quite high, analysts argue. They say that rising shop rentals caused by severe shortages, play a greater role in raising commodity prices as retailers who directly interact with the consumer, tend to pass on the burden to the people at large. Although official figures suggest the country faced inflation in 2010, the Permanent Population Committee maintains otherwise and says foodstuff, transport and many other items became expensive last year.

Analysts say it is hard to rein in inflation due to food becoming expensive worldwide and the liquidity flow into the country being high. The liquidity flow is hard to curb since Qatar is poised to witness fast-track economic growth.

source: The Peninsula